Big-Picture Perspective

What has more retail locations than the combined U.S. portfolios of Starbucks (11,570 stores), Dollar General (8,194), Wal-Mart (7,262), and The Home Depot (2,234)?

The U.S. Postal Service (USPS), which operates more than 30,000 retail locations across the continental United States, Hawaii, Alaska, Guam and Puerto Rico.

Although the conventional perception of the post office is as a service provider rather than a retailer, the USPS has added a significant retailing component in many postal lobbies.

Larger post offices carry as many as 100 unique “Ready Post” products, ranging from padded envelopes to mailing tubes to wrapping papers, while smaller post offices may offer only a handful of retail products.

Hallmark Custom Marketing, Kansas City, Mo., is the supplier of the products, which until recently shipped from Hallmark’s distribution center (DC) in Independence, Mo., to a third-party consolidator that created shipments for the various postal locations. The process was wrought with inefficiencies. For instance, only two of the 10 dock doors at the Hallmark DC were being utilized.

In 2007, the consolidator announced it was going out of business and the USPS had to develop an alternative plan immediately. Considering the ineffectiveness of the existing processes, change was welcome.

The solution was to build on existing relationships and leverage the under-utilized infrastructure that was in place. For starters, Frank Scheer, contract officer for the USPS, turned to Ryder Global Logistics for assistance. The USPS, which is proficient at small-parcel, last-mile deliveries, had worked with Ryder for about a year as a third-party logistics (3PL) provider to assist with the postal service’s freight transportation.

“Ryder was able to go beyond just providing transportation for a point-to-point move,” Scheer explained. “They looked at shipping requirements in the broader context of our retail products and they recommended alternatives that offered a more productive solution, yielded cost reductions and improved service performance with Hallmark.”

A collaborative meeting between the USPS, Ryder Global Logistics, Hallmark Custom Marketing (HCM) and three freight carriers tapped by Ryder to assist with transportation yielded a compelling, actionable strategy.

After evaluating the processes, the team realized it would be much more efficient to utilize the 10 dock doors at the Hallmark DC and, rather than ship the HCM orders to a consolidator, send them to one of the 21 bulk-mail centers (BMCs) operated by the USPS. From the BMCs, shipments would travel via the existing mail system for the “last-mile” distribution to the intended post office.

“HCM was willing to revisit how they manufactured orders from the standpoint of scheduling,” Scheer said. “Now, orders are grouped by destination according to the BMC that they need to go to. The transportation benefits included immediate cost savings because we could ship more at one time and bypass intermediate distribution activities.”

In addition to gaining the cooperation of its key supplier, the USPS also relied heavily on its 3PL partner.

“Ryder schedules its designated carriers to leave trailers at a local drop yard and HCM pulls the trailers to one of the dock doors for loading and then the carrier picks up the load,” explained Thomas Whitling, purchasing and supply management specialist for the U.S. Postal Service. “Ryder has an online tracking system that notifies the BMCs when a load is leaving the Hallmark DC and when it will arrive at the BMC.”

Additionally, the USPS has an internal Web-based system, FAST, that allows post offices to track their orders and anticipate when shipments will arrive.

Bypassing the consolidator, increased visibility into consistent, predictable deliveries, and using the existing mail system for the final leg of distribution has produced significant efficiency improvements, including a 14-day reduction in lead times according to Whitling.

“Through this transition, we learned how much we had been paying for a relatively inefficient supply chain network,” acknowledged Scheer. “With Ryder’s process-engineering skills, we have saved money and gotten better service at the same time.”

In a time when most retailers fear that supply chain improvements require hefty capital investments and lengthy implementations, a success story built on old-fashioned cooperation, communication and commitment to change is refreshing. Not only did the change happen seamlessly, it was only a month from the time that the USPS, HCM and Ryder met on June 1, 2007, until the new processes were implemented on July 1.

Scheer’s parting advice to other retailers: “Even if a retailer has a reasonably effective supply chain, they should take a fresh look periodically because there may be new approaches or new solutions that would be more effective or more efficient. Even when services may be incrementally cheaper, you have to look at the best overall solution and understand the total cost of bringing product to market.”